Bill would push Oregon's estate tax rate among nation's highest

Jamie Francis/The OregonianFarm and forest landowners say Oregon's estate taxes make it difficult to pass along family businesses to future generations.

SALEM -- Oregon would have one of the nation's highest estate tax rates under a bill moving through the Legislature. Ironically, that's music to the ears of opponents who want to follow the lead of other states and abolish so-called "death taxes."

Kevin Mannix, a former state lawmaker who has overseen a string of successful initiative campaigns, said he's "been working quietly" on several that would do away with Oregon's estate taxes. A bill raising the top rate to nearly 20 percent is just the ammunition he's looking for, he said.

Oregon brings in approximately $100 million a year from estate taxes. That revenue might be threatened under the new rates proposed in House Bill 2541, said Jody Wiser, who heads a group called Tax Fairness Oregon.

"It would give Oregon the second highest estate tax in the nation," said Wiser, who is concerned that distinction would leave the tax vulnerable to attacks by Mannix and others. "It's not a good talking point."

Oregon is one of about 20 states that still taxes estates inherited after a death, starting with estates valued at more than $1 million. The federal government taxes inherited estates after the first $5 million.

The effort to reform Oregon's estate taxes began two years ago as a way to make it easier for family farms, ranches and forestland to be passed from one generation to the next. The Oregon Law Commission offered a series of recommendations, including raising the exemption from $1 million to $1.5 million.

That higher exemption led to a proposal to raise the top rate to from 16 percent to 19.8 percent as a way to ensure the changes didn't cut too deeply into the state's revenue. The bottom-end rates would go from 6 percent to 10.5 percent. The bill gained substantial momentum when it made it through the House earlier this month on a bipartisan vote.

At a Senate committee hearing Monday, a number of farmers and timberland owners testified that raising the exemption would allow their children to inherit the family acreage without having to sell off parcels or log trees to pay the tax bill.

Oregon's estate tax is "a terrible disincentive" to families who want to accumulate acreage for farming or tree growing, said Rex Storm, with Associated Oregon Loggers. Storm, who owns 93 acres of commercial forestland, said that without raising the exemption, his children might not be able to afford to inherit his land.

"Oregon's death tax punishes families like mine," Storm said. He and other landowners who testified did not say anything negative about the higher tax rates.

But opposition surfaced from an unlikely pair: Mannix, who works with the conservative, anti-tax group Common Sense for Oregon, and Wiser's group, which advocates for progressive taxation.

Mannix warned that the bill would only add to Oregon's growing reputation as a high income tax state. It already has the top income tax and capital gains tax rates in the nation.

"We will have a trifecta," Mannix told the Senate Finance and Revenue Committee. "What we're doing is taking ourselves out of competition for jobs."

Wiser made a far different point, but with the same conclusion. There's no need to raise the exemption on inherited property by $500,000, she said because the $1 million exemption already affects only the wealthiest 1 percent in Oregon.

"It's hard to see why we need to change it," she said. Leaving the exemption at the current level means the state would not have to raise its top tax rate, she said.

And that would make it harder for Mannix, or anyone else, to mount a successful initiative campaign to get rid of the tax altogether.

Sen. Ginny Burdick, chair of the finance committee, said she doesn't want to lose sight of the original goal.

"Our estate tax system is a mess," said Burdick, a Portland Democrat. "It's really unfair to a lot of taxpayers."

One of the biggest problems, Burdick said, is that the full tax kicks in as soon as the inherited property hits the $1 million mark. The rewrite would offer a "ramp" of tax levels on property valued above the exempted limit.

Burdick suggested she is open, however, to concerns raised about the top tax rate.

"It remains to be seen how we jigger the tax rates," she said. "There are ways we can lower those rates."